ComCom to appeal High Court dismissal of price fixing claims

The Commerce Commission has announced it intends to file a notice of appeal in respect of the High Court’s recent dismissal of its proceedings against Lodge Real Estate Limited, Monarch Real Estate Limited (a franchisee in the Harcourts group) and two individuals for alleged price fixing.

While the decision was under the now-repealed section 30 of the Commerce Act 1986 (Act), it remains relevant as the Act continues to prohibit price fixing as a form of cartel conduct.

Background

In 2013, Trade Me announced to real estate agencies its intention to change its fee structure from a capped subscription fee to a ‘per listing’ fee. A group of agencies, including the defendants, met to discuss how to respond to Trade Me’s announcement.

The Commission alleged that, at this meeting, the agencies agreed to all withdraw their standard listings from Trade Me and that any Trade Me listings in the future would be “vendor funded”, meaning that it would be funded by the vendor and/or the particular real estate agent.

The Commission originally filed proceedings against 13 national and regional real estate agencies. While most of the agencies admitted that they had contravened the Act, entered into settlement agreements with the Commission and were subsequently ordered to pay pecuniary penalties totalling more than $18.97 million, two, Lodge Real Estate Limited and Monarch Real Estate Limited, defended the proceedings.

The judgment

The key issues in the case were:

whether the agencies had made an arrangement or reached an understanding; and

whether a provision of that arrangement or understanding had the purpose or effect of fixing, controlling, or maintaining the price for real estate advertising services or real estate sales services, which were the services the court found the agencies competed for.

For price fixing to be established, there must be an arrangement or understanding between competitors that has the purpose, or has or is likely to have the effect, of (or of providing for the) fixing, controlling, or maintaining of the price for the goods or services the parties compete to supply. The prohibition on price fixing is per se, meaning that price fixing conduct is a breach of the Act regardless of its effect on competition.

In dismissing the Commission’s claims, the Court found that:

the agencies were in competition with each other for the supply of real estate sales services and real estate advertising services;

the agencies had entered into an arrangement or arrived at an understanding to withdraw their standard listings from Trade Me and move to “vendor funding” of Trade Me’s “per listing” fees. The agencies would not absorb the new fees;

but the arrangement or understanding did not have the purpose or effect of fixing, controlling or maintaining the price of real estate sales or advertising services.

In coming to this conclusion, Jagose J considered that the arrangement not to absorb the cost of the fees said nothing about the price to be charged to vendors and nothing in the arrangement constrained an agent’s freedom to charge any price to any individual vendor on any individual transaction.

While accepting that the agencies intended that some portion of the new cost would be borne by vendors, Jagose J’s view was that the agencies retained full pricing discretion; the agencies could choose, despite the arrangement, to charge any price to individual vendors including choosing to absorb part or all of the listing fees. There was evidence that in some cases the agencies had in fact absorbed the fees instead of passing them on to vendors.

Commentary

The decision found that an arrangement that has the effect of controlling only a mathematically small proportion of total price is still “control” for the purposes of the price fixing prohibition if the part that is subject to control is materially significant. There is no “de minimis” qualification to section 30. This clarifies any uncertainty that may have been created by the Australian Federal Court’s decision in ACCC v Olex Australia Pty Limited & Ors [2017] FCA 222 which held that “more needs to be shown than merely that a provision has the likely effect of controlling a component of the price. It must have the likely effect of controlling the overall price, ie be a materially significant proportion of the price.”

The Court’s conclusion that the agencies’ arrangement did not fix, control or maintain price so as to amount to price fixing is, however, surprising given the Court’s findings that:

the agencies intended that some portion of the new cost would be borne by vendors (meaning that the price charged to vendors would be more than zero); and

control of the price charged to vendors for the Trade Me listing costs, whether as a proportion of marketing costs or commission paid by the vendor, would be ‘materially significant’.

The Court appears to have been influenced by how the parties subsequently set their prices in reaching the conclusion that the arrangement did not ‘control’ price. However, the subsequent conduct of the parties is not relevant to the intention of the parties when they entered into the arrangement.